Work Done But No Contract Agreed? A Remedy In Unjust Enrichment
If one business carries out work for another ahead of a contract being formally agreed, it could prove an uphill battle attempting to be paid for the work done if discussions collapse.
Businesses and entrepreneurs would do well to note the outcome1 of a costly dispute concerning whether or not a binding contract had been formed in circumstances where substantial work had already been performed.
What’s the background?
The claimant company sued for payment for fees for advisory work in relation to the potential sale of a company, a sale which did not ultimately take place. Terms of engagement had been presented and extensively negotiated. The defendant had not signed the engagement letter.
Even so, the claimant carried out significant amounts of work while terms were still being negotiated – including in relation to fees. The case is fairly complex, but a key issue was whether a binding contract had been agreed; and if not, whether an implied contract was in existence.
The claimant pointed out that it was possible for the parties to conclude a binding contract, even where they anticipate that a formal contract will later need to be executed. It also said it was highly relevant that work had already been done and it would often be “unrealistic to argue that there was no intention to create legal relations”.
The court disagreed: it was unwilling to accept a legally binding contract existed. It was obvious both parties intended and expected a binding contract at some point in future, and neither had the intention to be bound immediately given the work done by the claimant.
Nor was there an implied contract by which a reasonable fee would be paid for the works already completed. The parties envisaged agreeing the amount of fees.
The claimant had therefore taken on the risk of starting work in anticipation of an agreed contract.
Unjust enrichment
However, the claimant did succeed in its claim in restitution for unjust enrichment. The court was satisfied that the defendant received a benefit as a result of the claimant's services, knowing that they were not intended to be given freely. Both fully expected terms would be agreed.
Furthermore, the judge said “no-one in their right mind” would imagine that the claimant would devote “hundreds of hours” of work, simply “in the hope” of securing the engagement.
It would be unjust for the defendant not to pay for the benefit of the work done. The court valued the claimant’s work at £350,000 plus expenses.
What does this mean?
Where negotiations on the final contractual terms are still ongoing, it’s important to understand that a legally binding contract will not exist unless and until terms are agreed and both sides have the intention to create legal relations.
It is understandable that businesses may wish to start works as soon as possible, but without a contractual relationship in place – they might be doing so at their own risk. Ensuring that an initial agreement is in place in relation to any initial works will go a long way to minimising the risk of a future claim for unpaid fees.
1Fenchurch Advisory Partners LLP v AA Limited [2023] EWHC 108 (Comm))
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